U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT
For the quarterly period ended March 31, 1998
SOY ENVIRONMENTAL PRODUCTS, INC.
--------------------------------
(Exact name of small business as specified in its charter)
Delaware 481192445
-------- ---------
(State or other jurisdiction of (IRS Employer Identification)
incorporation or organization)
9135 Barton Street
Overland Park, Kansas 66214
---------------------------
(Address of Principal Executive Offices)
(602) 894-0100
--------------
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of each of the issuer's classes of common
equity was 6,290,200 shares of common stock, par value $.001, as of March 31,
1998.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC.
INDEX TO FORM 10-QSB FILING
FOR THE QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets
March 31, 1998 (unaudited) and September 30, 1997
Consolidated Statements of Operations
For the Three Month and Six Month Periods Ended March 31,
1998 and 1997 (unaudited)
Consolidated Statement of Changes in Stockholders Equity (Deficit)
For the Period Ended March 31, 1998 and the Year Ended
September 30, 1997
Consolidated Statement of Cash Flows
For the Three Month and Six Month Periods Ended March 31,
1998 and 1997 (unaudited)
Notes to Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II
OTHER INFORMATION
ITEM 2. Changes in Securities
ITEM 3. Defaults in Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31 September 30
-------- ------------
1998 1997
---- ----
(Unaudited)
Current Assets
Cash $ 121,672 $ 185,938
Accounts Receivable 4,316 12,936
Inventory 200,828 141,000
Prepaid Expenses 13,995 93,456
------------ ------------
Total Current Assets 340,811 433,330
Property, plant and equipment, net (Note 1) 15,646 13,183
Investment, at equity (Note 6) 154,051 190,000
Organization costs, net (Note 1) 6,207 7,093
License fees, net (Note 1) 4,700 4,800
------------ ------------
Total Assets $ 521,415 $ 648,406
============ ============
3
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31 September 30
-------- ------------
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Current Liabilities
Notes Payable-current portion (Notes 4 and 7) $ 484,042 $ 221,914
Accounts Payable 111,294 140,600
Accrued Expenses 95,865 54,856
------------ ------------
Total Current Liabilities $ 691,201 $ 417,370
------------ ------------
Notes Payable Long Term Portion (Notes 4 and 7) $ -- $ 631,264
------------ ------------
Contingencies (Notes 5 and 8) -- --
Stockholders' Equity (Deficit) (Note 9):
Preferred Stock, $.001 Par Value, 3,000,000 shares
authorized, 205,000 shares isued and
outstanding as of March 31, 1998 205 --
Common Stock, $.001 Par Value, 20,000,000 shares
authorized, 6,290,200 and 5,445,200 shares issued and
outstanding as of March 31, 1998 and
September 30, 1997, respectively 6,290 5,445
Additional Paid-in-capital 1,394,904 415,085
Accumulated Deficit (1,571,185) (820,758)
------------ ------------
Total Stockholders' Equity (Deficit) (169,786) (400,228)
------------ ------------
Total Liabilities and Stockholders' Equity $ 521,415 $ 648,406
============ ============
</TABLE>
The Accompanying Notes are an Integral Part
of the Financial Statements
4
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Month & Six Month Periods Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
March 31 March 31
-------- --------
1998 1997 1998 1997
==== ==== ==== ====
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 114,335 $ 5,046 $ 126,770 $ 8,179
Cost of Sales 79,139 2,354 89,770 3,906
----------- ----------- ----------- -----------
Gross Profit 35,196 2,692 37,000 4,273
General and Administrative Expenses 351,075 116,035 572,047 197,754
----------- ----------- ----------- -----------
Loss from Operations (315,879) (113,343) (535,047) (193,481)
Miscellaneous Income (Loss) (35,427) -- (35,189) 245
Interest Expense (89,821) -- (180,191) --
=========== =========== =========== ===========
Net Loss $ (441,127) $ (113,343) $ (750,427) $ (193,236)
=========== =========== =========== ===========
Loss Per Share (Note 1) (0.07) (0.02) (0.13) (0.04)
=========== =========== =========== ===========
Basic Weighted Average Shares Outstanding 6,008,533 5,190,308 5,867,700 4,795,100
=========== =========== =========== ===========
</TABLE>
The Accompanying Notes are an Integral Part
of the Financial Statements
5
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD ENDED MARCH 31, 1998 AND THE YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Total
-----
Additional Stockholders'
---------- -------------
Preferred Stock Common Stock Paid-in Accumulated Equity
--------- ----- ------------ ------- ----------- ------
Shares Amount Shares Amount Capital Deficit (Deficit)
------ ------ ------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1996 -- $ -- 8,816,922 $ 8,817 $ -- $ -- $ 8,817
1 for 6 reverse stock split -- -- (7,347,422) (7,347) 7,347 -- --
Reverse merger with Delta
Environmental, Inc. (Note 1) -- -- 2,530,500 2,530 32,470 (40,726) (5,726)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Adjusted balance after
reverse merger -- -- 4,000,000 4,000 39,817 (40,726) 3,091
Proceeds from private
offering, net of costs of
$104,849 -- -- 1,393,800 1,394 358,357 -- 359,751
Compensation for consulting
services -- -- 51,400 51 16,911 -- 16,962
Net loss for the year ended
September 30, 1997 -- -- -- -- -- (780,032) (780,032)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30,
1997 -- -- 5,445,200 5,445 415,085 (820,758) (400,228)
Proceeds from private
offering; Net of costs of
$69,131 205,000 205 -- -- 135,664 -- 135,869
Conversion of Senior
Convertible Debt -- -- 720,000 720 719,280 -- 720,000
Compensation for consulting
services -- -- 125,000 125 124,875 -- 125,000
Net loss for the six months
ended March 31, 1998 -- -- -- -- -- (750,427) (750,427)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 1998 205,000 $ 205 6,290,200 $ 6,290 $ 1,394,904 $(1,571,185) $ (169,786)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The Accompanying Notes are an Integral Part
of the Financial Statements
6
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Month & Six Month Periods Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
March 31 March 31
-------- --------
1998 1997 1998 1997
==== ==== ==== ====
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net cash used by operating activitites (393,151) (75,953) (707,723) (240,649)
--------- --------- --------- ---------
Cash Flows for Investing Activities:
Increase in Furniture and Equipment (4,224) --
Increase in Investment 35,949 (42,698) 35,949 (42,698)
--------- --------- --------- ---------
Net cash used by investing activities 35,949 (42,698) 31,725 (42,698)
--------- --------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of preferred stock 205,000 -- 205,000 --
Proceeds from issuance of common stock 806,483 47,519 775,868 238,477
Repayment of notes payable (559,507) -- (369,136) --
Proceeds (payments) from notes payable -- 50,000 -- 50,000
--------- --------- --------- ---------
Net cash provided by financing activities 451,976 97,519 611,732 288,477
--------- --------- --------- ---------
Net increase (decrease) in cash 94,774 (21,132) (64,266) 5,130
Cash at the beginning of period 26,898 26,262 185,938 --
--------- --------- --------- ---------
Cash at end of period $ 121,672 $ 5,130 $ 121,672 $ 5,130
========= ========= ========= =========
</TABLE>
The Accompanying Notes are an Integral Part
of the Financial Statements
7
<PAGE>
SOY ENVIRONMENTAL PRODUCTS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation:
The accompanying Statements of Operations for the three and six months
ended March 31, 1998 and 1997, Statement of Changes in Stockholders'
Equity for the period ended March 31, 1998 and Statements of Cash Flow
for the three and six months ended March 31, 1998 and 1997, are
consolidated statements and include all of the accounts of the Company
and its wholly-owned subsidiary, Delta Environmental, Inc. All
intercompany accounts and transactions were eliminated in the
consolidation of these statements.
Interim Financial Statements:
The unaudited interim financial statements include all adjustments
(consisting of normal recurring accruals) which, in the opinion of
management, are necessary in order to make the financial statements not
misleading. Operating results for the six months ended March 31, 1998
are not necessarily indicative of the results that may be expected for
the entire year ending September 30, 1998. These financial statements
have been prepared in accordance with the instructions to Form 10-QSB
and do not contain certain information required by generally accepted
accounting principles. These statements should be read in conjunction
with financial statements and notes thereto included in the Company's
Form 10-KSB for the year ended September 30, 1997.
Loss Per Common Share and Common Equivalent Share:
The computation of loss per share is based on the net loss and the
weighted average number of shares of common stock and common stock
equivalents outstanding for each period. Certain stock options and
warrants outstanding during the quarters and periods ended March 31,
1998 and 1997 are not included in the computation of loss per share for
those periods because their effect would be antidilutive. Loss per
share for the quarter and period ended March 31, 1997 have been
restated to give retroactive effect to FASB No. 128.
2. Concentrations:
Major Supplier:
The Company purchases substantially all of its supply of soybean methyl
esters and other materials from Interwest L.L.C., a related entity. As
of March 31, 1998, the amount included in accounts payable was
approximately $346.
3. Notes Payable:
As of March 31, 1998, notes payable are
as follows: Non-interest bearing note
payable to an individual, Due on
demand: unsecured $ 50,000
Non-interest bearing Senior Secured
Convertible Notes, in the aggregate of
$204,000 (effective rate approximately
32%), principal due January 30, 1998
and convertible after November 15, 1997
into 204,000 shares of common stock;
secured by stock and corporate assets 204,000
8
<PAGE>
SOY ENVIRONMENTAL PRODUCTS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-interest bearing promissory note in
the aggregate amount Of $241,500 (less
unamortized discount of $11,458,
effective rate Approximately 60%,
principal due April 30, 1998 and
Convertible after April 30, 1998 into
241,500 shares of Common Stock 230,042
----------
484,042
----------
$ 696,271
==========
As of January 30, 1998, $204,000 of Senior Secured Convertible Notes
went into default and began accruing interest at the rate of 5% per
month.
4. Investment:
The investment consists of an approximate 25% ownership interest in
Interwest, L.L.C., an Iowa limited liability company. The investment
will be accounted for under the equity method.
Current Assets $ 136,800
Property, plant and equipment 1,043,411
Other assets, net 2,375
-----------
Total Assets $ 1,182,586
===========
Current Liabilities $ 166,384
Long-term debt 1,150,000
-----------
$ 1,316,384
-----------
Stockholders' equity $ (133,798)
-----------
Total liabilities and stockholders' equity $ 1,182,586
===========
5. Contingencies:
In relation to the Company's debt offering, the Company issued 924,000
warrants exercisable at $1 per share. Upon exercise of these warrants,
the placement agent is to receive five percent (5%) of the proceeds
received by the Company. Should all the warrants be exercised, the
Company will incur $46,200 of additional costs. As of March 31, 1998,
no liability has been accrued.
6. Stockholders' Equity:
Common Stock and Stock Split:
On November 8 1996, the Company's Board of Directors authorized a 1 for
6 reverse split of its common stock.
9
<PAGE>
SOY ENVIRONMENTAL PRODUCTS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Private Offerings:
During the year ended September 30, 1997, the Company completed a
private placement of common stock pursuant to Regulation D promulgated
by the Securities and Exchange Commission. The Company issued 1,393,800
shares of common stock pursuant to the offering.
Options and Warrants:
The Company has issued 100,000 stock options pursuant to an employment
agreement. The options are exercisable at $1.00 per share for a period
for five years from grant date.
In December 1997, the Board of Directors authorized a private placement
on a best efforts basis of up to $241,500 principal amount of
convertible notes and 241,500 warrants. The full amount of $241,500 was
sold during the quarter ended March 31, 1998.
The Company also initiated a Private Placement for the sale of up to
20,000 shares or up to $2,100,000 of Series A Convertible Preferred
Stock. An amount of $205,000 was sold during the quarter ended March
31, 1998.
7. Basic Earnings Per Common Share:
Basic earnings per share are based upon the weighted average number of
shares outstanding for each of the respective periods. The following
data reflects the amount used in computing earnings per share for the
six month and three month periods ended March 31, 1998.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
March 31 March 31
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income available to common $ (441,127) $ (113,343) $ (750,427) $ (193,236)
stockholders used in basic EPS
Basic earnings (loss) per share
Weighted average common shares 6,008,533 5,190,308 5,867,700 4,795,100
outstanding ----------- ----------- ----------- -----------
Basic earnings (loss) per share $ (0.07) $ (0.02) $ (0.13) $ (0.04)
=========== =========== =========== ===========
</TABLE>
Earnings per share assuming dilution have not been presented as they
were antidilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this Form 10-QSB. Prior to October 21, 1996, the
Company had no operating history. Subsequent to October 21, 1996 all of the
Company's operations are being carried out by its wholly owned subsidiary Delta
Environmental, Inc. (DEI'). Therefore, all discussions below concerning the
Company prior to the acquisition of DEI relate to and reflect the operations of
DEI only.
10
<PAGE>
I. RESULTS OF OPERATIONS
Six Months Ended March 3l, 1998 Compared to 6 Months Ended March 3l,
1997. For the six month period ended March 31, 1998, the Company had sales of
$126,770 with cost of sales equal to $89,770 resulting in a gross profit of
$37,000. For the same period ending March 31, 1997, the Company had sales of
$8,179 and cost of sales of $3,906 with a gross profit of $4,273. Cost of sales
as a percentage of sales was 70.8% and 47.8% for the six month periods ending
March 31, 1998 and 1997, respectively. The wide variance in percentages is due
to the small volume of sales and neither percentage may be indicative of future
costs of sales as a percentage of sales on anticipated higher revenues. For the
three months ended March 31, 1998 the Company had sales of $114,335 and cost of
sales of $79,139 with a gross profit of $35,196. For the same period ending
March 31, 1997, the Company had sales of $5,046 and cost of sales of $2.354 with
a gross profit of $2,692. General and administrative expenses were $572,047 for
the six months ended March 31, 1998, which resulted in a loss from operations of
$535,047 for the period.. For the same period ending March 31, 1997, general and
administrative expenses were $197,754 and the loss from operations was $193,481.
General and administrative expenses for the three months ended March 31, 1998
were $351,075 which resulted in a loss of $441,127. The increase in general and
administrative expenses of approximately $374,000 was due primarily to the
start-up costs for the marketing program of the Company. General and
administrative costs for the three months ended March 31, 1997 were $116,035
which resulted in a loss of $113,343
The Company anticipates that its operating expenses will be increasing
so that the Company's future profitability will depend upon significant
increases in revenue from operations. While the Company believes that sales
revenue will increase due to the Company's marketing activities and distribution
agreements recently entered into, there can be no assurance as to the amount of
income which the Company may be able to generate from distributions and sales
operations. Losses have primarily resulted from high start-up and general
administrative costs compared to the Company's initial low sales volume. Given
the Company's financial resources, its anticipated expenses and the highly
competitive environment in which it will operate, there can be no assurance that
the Company will be able to generate sufficient revenue to fund its current or
future operations or that the Company's future operations will be profitable in
the near future or at all.
II. LIQUIDITY AND CAPITAL RESOURCES
From the date of its formation, January 10, 1996, to the date of the
acquisition of DEI, October 21, 1996, the Company had no revenues or operating
income. For the six month period ended March 31, 1998, the Company had revenues
of $126,770, primarily from its initial delivery to Payless Cashways. As of the
date of acquisition of DEI, the Company had no tangible assets. On September 30,
1997, the Company had total assets of $648,406 and total stockholders' equity
(deficit) of $(400,228) compared to $521,415 and $(169,786), respectively, as of
March 31, 1998. As of September 30, 1997, the Company had current assets of
$433,330 in the form of cash, accounts receivable and current liabilities of
$417,370. At March 31, 1998, the Company had current assets of $340,811
comprised of $121,672 cash, $4,316 accounts receivable and $200,828 inventory,
and current liabilities of $691,201. The Company has increased its inventory in
anticipation of increased sales and expects to continue to increase inventory as
sales activities increase.
Since inception, the Company's working capital needs have been
satisfied by financing activities consisting of the private placement of common
stock and debt. During the period ended March 31, 1998, a portion of the Senior
Secured debt went into default. In addition, the Company has approximately
$241,500 of debt due in April, 1998.
The Company anticipates meeting its working capital needs during the
current fiscal year primarily with proceeds from the sale of securities and
secondarily with revenues from sales and distribution operations. The Company
believes that it will require substantial additional funds to cover the costs of
manufacturing its products, general and administrative overhead and meeting its
reporting obligations under the Securities Exchange Act. If such funds are
necessary, the Company will seek to borrow such funds and/or raise such funds
through the private or public sale of its common stock or other securities. No
assurances can be given that such financing, if required, will be available, or
that it can be obtained on terms satisfactory to the Company. In the opinion of
management, inflation has not had a material affect on the operations of the
Company.
11
<PAGE>
During January, 1998, the Company received its first purchase order
from Payless Cashways of approximately $100,000. The Company's products with
respect to this order were shipped in the first quarter of 1998. The Company
anticipates additional orders for its product will be generated from other home
improvement center retailers. The Company has commenced the establishment of a
manufacturer's representative organization to represent the Company's product
throughout the U.S. that it continues to expand. The organization is responsible
for contacting and developing target markets as determined by the Company's
segments involving large hardware/home center retail chains and the light
industrial and automotive users. Management believes that the proceeds from its
financing activities as currently anticipated will be sufficient to provide for
the Company's planned expansion of its marketing, distribution and sales
activities.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
From December 8, 1997 through January 31, 1998, the Company issued a
total of $241,500 of Convertible Subordinated Notes and 241,500 Warrants as
units for total consideration of $200,000. The Convertible Subordinated Notes
were placed through Capital West Investments Holding Company, Inc. for total
commissions of $14,000. The offering was solely to "accredited investors"
pursuant to Rule 506 of Regulation D. Each Convertible Subordinated Note is due
four months from issuance and is convertible into shares of the Company's Common
Stock on the basis of $1.00 of principal per share. The Warrants allow the
holder thereof the right to purchase one share of Common Stock per Warrant at
$1.00 for three years from the date of issuance.
Subject to the filing of the amendment to the Company's certificate of
incorporation described in Item 4, and the filing of an appropriate certificate
of designation in Delaware, the Company issued 205,000 shares of Series A
Preferred Stock and 102,500 Class C Warrants as units from February 6, 1998
through February 26, 1998 for a total consideration of $205,000. The offering
was made solely to accredited investors pursuant to Rule 506 of Regulation D.
The Series A Preferred Stock was placed through Capital West Investment Group
and Fox & Company Investments, Inc. for total commissions of $26,650. The Series
A Preferred Stock has the following terms:
Dividends. The holders of the Series A Preferred Stock are entitled to
receive a $.12 (12 %) annual, dividend, accruing each June 1 and December 1
commencing on June 1, 1998. Dividends shall be payable when, as and if declared
by the Board of Directors, shall be cumulative, and shall only be paid out of
funds legally available therefor, if any. Any accumulated but unpaid dividends
will be payable upon conversion of the Series A Preferred Stock to Common Stock.
At the Company's discretion, dividends may be paid in shares of the Company's
Common Stock with a predetermined value of $2.00 per share.
Priority. The Series A Preferred Stock has preference in payment of
dividends over the Company's Common Stock. In the event of any liquidation,
dissolution, or winding up of the Company, the holders of Series A Preferred
Stock will be entitled to receive $1.00 per share of Series A Preferred Stock,
plus any accumulated but unpaid dividends accrued thereon, before the holders of
Common Stock receive any distributions. The Company may not establish a series
of preferred superior to the Series A Preferred Stock, but may establish a
series with equal preferences to dividends and liquidation distributions.
Conversion. The Series A Preferred Stock is convertible into the
Company's Common Stock in minimum denominations of 1,000 shares, initially on a
one-for-one basis. The conversion ratio is subject to adjustment as of January
1, 1999 and each January 1 thereafter (each, an "Adjustment Date"). On any
Adjustment Date the conversion ratio will be adjusted to the quotient of which
$1.00 is the numerator and an amount equal to 75% of the Company's Common Stock
five day prior average closing price is the denominator. If any adjustment
changes the conversion ratio to more than one share of Series A Preferred Stock
for one share of Common Stock (or increases such ratio to more than the prior
ratio) notice will be given to all holders of the Series A Preferred Stock and
the holders may elect within 45 days of such notice to convert the Series A
Preferred Stock at the conversion ratio in effect immediately prior to the
Adjustment Date.
Mandatory Conversion. The Series A Preferred Stock will convert
automatically into the Company's Common Stock at the conversion ratio in effect
in the event of a qualified public offering ("QPO") of or upon attainment of a
qualified market price ("QMP") for the Company's Common Stock. A QPO will occur
upon the successful completion of a public offering of the Company's Common
Stock at a price of not less than $4.00 per share with total gross proceeds of
not less than $5,000,000. A QMP will occur at any time after January 1, 1999 in
the event the closing bid price of the Company's Common Stock in an established
market equals or exceeds $4.00 per share for 90 consecutive trading days with
volume of not less than one percent of the shares outstanding.
Anti-Dilution. The conversion ratio of the Series A Preferred Stock is
subject to adjustment to prevent dilution in the event of any stock splits,
stock dividends (except dividends payable on the Series A Preferred Stock), or
other adjustments to capital structure of the Company.
The 102,500 Class C Warrants issued as part of the units in connection
with the placement of the Series A Preferred Stock provide the holders the right
to acquire 102,500 shares of Common Stock at a price of $1.25 per share until
December 1, 1999, and for $1.50 per share thereafter. The Class C Warrants
expire on March 1, 2000.
13
<PAGE>
The Company issued 102,500 Class D Warrants to acquire 102,500 shares
of Common Stock at a price of $1.50 per share to the placement agents in
connection with the placement of the Series A Preferred Stock and Class C
Warrants. The Class D Warrants expire March 1, 2002.
During the period from January 1, 1998 through March 31, 1998, $720,000
of the Company's Senior Secured Convertible Notes were converted into 720,000
shares of the Company's Common Stock. The conversions were made in reliance on
Section 3(a)(9) and of the Securities Act of 1933, as amended (the "Securities
Act") as an exchange by the Company with its existing security holders where no
commission or remuneration was paid and pursuant to Section 4(2) of the
Securities Act as a transaction not involving any public offering.
The Company issued 125,000 shares as compensation for consulting
services to certain consultants of the Company during the quarter ended March
31, 1998. Such shares were issued pursuant to Section 4(2) of the Securities Act
as a transaction not involving any public offering.
ITEM 3. DEFAULTS IN SENIOR SECURITIES
The Company issued $924,000 of its Senior Secured Convertible Notes due
January 31, 1998. Of the $924,000 outstanding, $720,000 of such Senior Secured
Convertible Notes were converted into 720,000 shares of the Company's Common
Stock and the remaining $204,000 principal amount went into default. The Senior
Secured Convertible Notes accumulate interest at the rate of 5% per month. At
April 30, 1998, approximately $250,000 of principal and accumulated interest was
outstanding on the Senior Secured Convertible Notes. The Senior Secured
Convertible Notes are secured by a lien on essentially all of the assets of the
Company. No collection activity with respect to such defaulted notes has been
commenced and the Company anticipates that the notes will ultimately be
converted or otherwise satisfied. However, there is no assurance that the
Company will have sufficient funds to satisfy the obligations under such Senior
Secured Convertible Notes. If the Company fails to satisfy its obligations under
such notes, it is possible that the holders thereof would exercise their
remedies and seek to satisfy their obligations through a sale or forfeiture of
the Company's assets. In such event, in all likelihood, the company could not
continue as a going concern.
The Company is in default of payment of approximately $150,000 in
principal and accumulated interest on its outstanding Convertible Subordinated
Notes described in Item 2 above. Such notes are accumulating interest at the
rate of 5% per month. Although these notes are not secured by the assets of the
Company, if the holders of such notes institute legal proceedings against the
Company and the Company is unable to repay such notes, the Company may not be
able to continue as a going concern.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In accordance with a definitive Informational Statement on Form 14C
filed with the Securities and Exchange Commission, the Company solicited a
stockholder consent to amend the Company's certificate of incorporate to
authorize the issuance of up to 3,000,000 shares of preferred stock. The Company
obtained the written signatures of 3,345,967 shares to approve such amendment.
The amendment to the certificate of incorporation has been filed in Delaware,
together with a certificate of designation for the Company's Series A Preferred
Stock.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed by the undersigned, thereunto duly authorized.
SOY ENVIRONMENTAL PRODUCTS, INC.
(Registrant)
Dated: June 1, 1998 By: /s/ Gary L. Haer
------------ --------------------------------------
Gary L. Haer, Chief Financial Officer
14
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